Can ULIPs really give good returns? Let’s find out
PNB MetLife 25-12-2018 12:14:10 PM
ULIPs (Unit Linked Insurance Plans) give you a combined benefit of life cover and investment returns. So, you can watch your investments multiply through market linked returns along with a good life insurance cover. What’s more, when you opt for a ULIP plan, you not only invest and insure; you save tax as well!
Here’s a closer look at the benefits of a ULIP:
- Flexibility and safety in your investment plan
ULIPs are a safe and flexible approach to investment planning. You can opt for a plan that is in sync with your investment objectives. There are ULIP Policies which allow you to choose from a variety of funds. So, you can safely balance your fund with equity and debt components; and even switch during the policy year at no cost at all if the market changes.
- Save according to your goals
ULIP Plans can help you become more disciplined and organised as they encourage you to invest while keeping an eye on your goals. Since you have the flexibility to select and switch funds, you could plan for your child to study abroad and plan for a second home at the same time.
- Get tax benefits
Another attractive benefit is the tax deduction advantage you get with ULIP Policies. These plans allow you to get a tax deduction on the premium amount. Different stages of your ULIP Policy will offer different tax benefits.
- During the investment stage: Under Section 80C of the Income Tax Act (1961), money invested in a ULIP Plan can be claimed as a deduction. As per current tax laws, the maximum deduction on the premium amount that is available is Rs 1.5 lakhs. This deduction can be availed only when the premium is less than 10% of the sum assured.
- At the maturity stage: As a ULIP Policy holder, you will receive the maximum of the assured amount or the fund value once the policy matures. This is also when you see the investment cum insurance benefits working efficiently. In case of your demise, the assured amount is the guaranteed amount your family receives. On the other hand, the fund value is the amount accumulated through your various investments. Under Section 10 (10D) of the Income Tax Act, the maturity pay-out is also exempt from tax.
- Riders on ULIP Plans
For a nominal fee, or sometimes even free of cost, companies do offer Riders on their plans. A rider may include a death benefit, critical illness benefits and disability benefit. The benefit of a Rider is that if there is an unforeseen event, your future premium gets waived. This ensures that your family is saved from the burden of paying premiums.
- Increased fund value with top ups
This option enables you to increase the risk cover for your life and enhance the protection for your family. Basically, it allows you to increase your fund value by increasing the premium amount.
- Plan your returns
Since ULIPs offer such a plethora of options and benefits, you can see that the plan you choose will impact your returns. So, the wise thing to do is to set out your investment objectives and review your goals. This will certainly help you to invest in a ULIP Policy that will suit your needs and offer you the best returns.
As per new Insurance Regulatory and Development Authority of India (IRDAI) guidelines, ULIPs are much more investor-friendly than they were at the time they were first introduced. Costs like premium allocation charges, administration charges, fund management charges, and surrender charges have come down.
ULIPs can be great wealth creating tools for the long term because of the diversity of funds offered. And they are ideal for those who want to start young to ride on the equity advantage.